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IBBI suggests project-based insolvency, excludes allotted property

IBBI has also proposed project-based insolvency to attract multiple bidders for different projects in real estate insolvencies

industry, ibc, pli, bankruptcy

Ruchika Chitravanshi New Delhi

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To address the plight of homebuyers, the Insolvency and Bankruptcy Board of India (IBBI) has proposed that property in possession of allottees should be excluded from the resolution process and the liquidation estate during the corporate insolvency resolution process.

In the discussion paper released on Monday, the insolvency regulator has batted for an increased role of the Real Estate Regulatory Authority (RERA) by proposing compulsory registration of all real estate projects undergoing corporate insolvency resolution process, with the real estate regulator by the insolvency professionals. 

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“The registration of the Real Estate Project is essential for ensuring a more transparent, accountable, and efficient process,” IBBI has said. 
 

IBBI has also sought the views of stakeholders on the implementation of Amitabh Kant’s Committee Report on Real-Estate projects. The report related to Legacy Stalled Real Estate Projects recommended that “the IBC needs to be reformed to better accommodate the complexities of the real estate sector.”

Some of the suggestions include project-wise insolvency, and transfer of the ownership and possession of a plot, apartment, or building to the allottees during the resolution process.

IBBI is also considering that through its regulations, it could come up with a resolution mechanism tailor-made to address the needs of the real estate sector to provide for project-based insolvency and also allow homebuyers to become Resolution Applicants. 

On the proposed project-wise insolvency, experts have flagged off concerns such as an increase in the administrative burden, especially if a real estate company has multiple projects at various stages of development. 

“It may complicate the overall insolvency process, as coordinating multiple resolution plans and involving various stakeholders for each project can be challenging. This could potentially lead to uneven results, with some projects being resolved more efficiently than others,” said Siddharth Mody, Partner, J. Sagar Associates.

However, most agree that if one project has defaulted, it makes little sense to drag the entire company into CIRP.

“Project-wise insolvency or “reverse insolvency” is otherwise a very practical solution given the unique nature of the real estate sector which has intervening financial interests of lenders and allottees alike,” said Smiti Tiwari, Partner, Khaitan Legal Associates.

In line with the RERA provision, IBBI has also suggested maintaining separate bank accounts for each project to ensure transparency in the process.

This, IBBI has said, would facilitate information about a particular project, which may be useful for project-wise insolvency or for inviting separate resolution plans for a particular real estate project. 

IBBI has also stressed that in cases where the allottees have paid the full amount and occupied the units or possession of a plot, apartment, or building to the allottees have already been handed over to him, the transactions need to be formalised through the transfer of such units during the resolution process with the approval of the Committee of Creditors.
 
This is being suggested not just with a view of larger public good, but also to reduce disputes at the adjudicating authority. 

Resolution professional, the IBBI has proposed, may also be permitted to hand over the possession of units to the allottees on an ‘as is where is’ basis or on payment of the balance amount. 

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First Published: Nov 07 2023 | 5:34 PM IST

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